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Minimum wage, retirement & other burning social and economic trends

by The Wrinkle | October 3, 2010

For those of us in business it seems we have a constant battle trying to bridge the “expectation gap” between clients, staff, and suppliers. Robust and strong communication is obviously helpful, but the road to consensus can often be difficult and painful. In the west in particular we tend to think in terms of black and white, or winner and loser. While middle ground can sometimes be achieved it’s never a “given”.

The question I want to pose this week, is that understanding how hard it is within a business environment to close this expectation gap, what chance do we have with some of the “burning” social and economic trends we are going to be faced with over the coming decades. I say decades because some of the financial fallout of the GFC will take decades in some countries to wash its way totally out of the system.

At the outset the Wrinkle will confess he has no magic wand or answers to the issues I’m about to raise (well maybe next week). However as the old adage goes, you need to define the problem first before you can solve it.

If you look at minimum wages around the world and take out the smaller wealthier European countries such as Luxemburg, Denmark, and the Netherlands (in the countries that legislate for a minimum wage), Australia and Ireland are at the top of the table at just under AUD30,000 per year.

France isn’t far behind at AUD26,000, Japan’s at AUD19,000, the US is at AUD16,000 and Spain is at AUD11,000. Most of us would have seen the latest US census numbers where it was estimated that one in seven people live below the poverty line. We also know that unemployment rates are far higher for youth workers than the general population; we also know that Spain has 20% unemployment; the US has 10% unemployment and requires at least 100,000 new jobs a month for that rate not to increase.

Ala Japan we also know that Italy has a vast workforce of temporary workers, that are called the 1,000 euro generation (there are over 6.9 million Italians who earn less than 1,000 Euros (AUD1,400) per month, of which 60% are woman). Italy doesn’t have a federally enforced minimum wage, instead relying on collective agreements; ergo you have to be a full time union employee to receive the protection of the collective agreement.

To quickly summarise, in many countries we now have a large low paid workforce, plus very high unemployment in the younger segments of society. Due to historical norms established when the life expectancy was much higher, we currently also have a low entry age for universal old age pensions.

The classic example of this is France, where the expectation for life is a third, a third, a third. The first third to train and establish your life, the second third to build your career and family, and the last third after the age 60 is to retire and enjoy your twilight years.

There are currently large public disturbances planned in France over the proposed raising of the retirement age to 62. Arguably France is still at least 5 years behind the demographic curve imposed elsewhere. The Wrinkle has talked previously about the lower birth rates around the world and potential impact on government tax revenues.

So how do you reconcile, and close the inter-generational gap developing and brought forward by the financial wealth squandered in the GFC? We have;

- high youth unemployment rates

- large numbers of low paid workers

- many people below the poverty line even in so called first world countries, 1 in 7 isn’t a small number

- governments imposing austerity programs to pay for the financial bail out post the GFC

- longer life expectancy and a sense of earned retirement benefits, remember a lot of people in or close to retirement had to live through the austerity post World War II

So that’s the question. If anyone has any comments or suggestions please email me at otherwise next week I’ll try and pick a potential way through this minefield. There’s my challenge for the week.

For the sports fans out there having both the AFL and NRL finals on this long weekend, not to mention a cricket test should bring a smile to everyone’s face.

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